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Photo: Mint
Photo: Mint

Banks fail to reach consensus on NBFC loan moratorium

  • IBA to write to RBI seeking clarity after lenders remain divided over the issue of giving moratorium to NBFCs
  • SBI continues to maintain its stance of not too keen on giving moratorium to non-banking finance companies

MUMBAI : Indian Banks Association on Saturday decided to write to Reserve Bank of India seeking clarity after lenders remain divided over the issue of giving moratorium to non-banking finance companies, according to two bankers aware of the matter. The decision comes after the management committee of banks met to discuss this issue.

State Bank of India has continued to maintain the stance that the bank is not too keen on giving moratorium to non-banking finance companies and would rather have them borrow under the Targeted loan term repo operations (TLTRO) window. Other banks, however, feel that by lending under the TLTRO facility, they would be taking additional exposure to these NBFCs.

IBA has therefore decided to make a case study of 20-25 NBFCs to study their financial health, repayment ability and present to RBI next week, according to the first banker cited earlier.

“It doesn’t make sense to give funding to NBFCs under the TLTRO facility and use it to repay their existing loans," said the head of a public sector bank. “It should be used for growth purpose."

The RBI guidelines on loan moratorium do not exclude non-banking finance companies or other financial institutions from giving this dispensation. However, the central bank has taken a stance that banks should use the TLTRO window to access cheap funding to invest in the corporate papers of these companies. The questionnaire prepared by IBA in consultation with the finance ministry is, however, clear that moratorium is available to all borrowers including NBFCs.

NBFCs typically borrow from banks and on-lend it to a wide variety of sectors such as automobiles, retail and small enterprises. The non-banks, facing a liquidity shortage ever since Infrastructure Leasing and Financial Services Ltd defaulted on its payment obligations, fear renewed strain if banks do not extend the moratorium to them.

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